How Crypto Perpetual Futures Actually Work

When a trader buys a Bitcoin perpetual contract, no Bitcoin has to move between the trader and the seller. The trade creates a contract that changes value when Bitcoin’s reference price changes. The exchange matches the orders, checks the collateral, and records the resulting position in the internal ledger.

That position still has real financial consequences. A trader with a settled profit can withdraw a balance, while a losing trader can lose collateral or have the position forcibly closed. The important distinction is between the contract, the collateral that supports it, and the blockchain transaction used to deposit or withdraw an asset.

What a price pair tells you

A pair such as BTC/USD says that the price of Bitcoin is quoted in dollars. The pair does not tell you whether the instrument is spot or a derivative, or whether a derivative is linear or inverse. A linear contract calculates profit and loss (PnL) in the quote currency. An inverse contract quotes the exposure in dollars but calculates and settles PnL in the underlying coin. The detailed examples appear below.

Suppose an order book shows:

BTC/USD    bid: 100,000    ask: 100,010

The bid is the highest price at which a buyer is waiting to buy. The ask is the lowest price at which a seller is waiting to sell. A customer who wants to buy immediately accepts the ask and trades with that seller. A customer who wants to sell immediately accepts the bid and trades with that buyer. A market maker may be the buyer at the bid or the seller at the ask, but any participant can post an order. The $10 difference is the bid-ask spread.

On a spot market, a completed purchase exchanges assets. Buying $10,000 worth of Bitcoin at $100,000 gives the buyer 0.1 BTC, before fees. The buyer owns that BTC in the exchange account and can normally withdraw it, subject to the exchange’s rules.

A derivative works differently. It is a contract whose value depends on an underlying asset. A Bitcoin perpetual gives the trader exposure to the price of Bitcoin, but opening the position does not transfer 0.1 BTC to the trader.

Trade	What the trader receives	What determines the result
$10,000 of BTC on spot	0.1 BTC at $100,000	The value of the owned BTC
$10,000 of BTC perpetual exposure	A position with $10,000 notional value	The contract’s price change, funding, and fees

Notional value is the size of the exposure used to calculate the position’s result. It is not necessarily the amount of collateral held in the account. The second trade can require much less than $10,000 of collateral. That is leverage: the position is larger than the money initially posted to support it. With leverage, the same price move is a larger percentage of the posted collateral.

What a perpetual contract represents

A dated futures contract expires on a specified date. The exchange then closes or delivers the position according to the contract rules.

A perpetual contract has no normal delivery date. A trader can keep it open while the account has enough margin. The contract needs another mechanism to stay near its underlying spot market, because there is no expiry at which the two prices must meet.

That mechanism is funding. Long and short position holders make periodic payments based on the difference between the perpetual’s market price and an index derived from spot prices. When the perpetual trades above its index, longs generally pay shorts. When it trades below the index, shorts generally pay longs. The exact calculation, caps, and timing depend on the exchange.

On Deribit, funding is transferred between long and short positions rather than kept as an exchange fee. The public market data includes an index price, a mark price, a current funding value, and an accumulated eight-hour funding estimate. The rate is quoted over eight hours, while the exchange applies funding continuously over the time that a position is held. Two otherwise identical trades can therefore produce different results if they remain open for different lengths of time. Other perpetual markets may use different rules.

Linear and inverse contracts

Perpetual describes the lack of a normal expiry. It leaves the position’s size, margin, and profit-and-loss currencies to the instrument specification.

A linear contract has a fixed amount of the underlying asset and a profit or loss (PnL) that is linear in the quoted currency. In this example, USDC is a dollar-pegged stablecoin. Let Q be the position size in BTC, P_entry the entry price, and P_exit the exit price. For a long:

PnL in USDC = Q × (P_exit − P_entry)

For example, a 0.1 BTC linear long opened at $100,000 and closed at $110,000 has this price profit:

0.1 × (110,000 − 100,000) = 1,000 USDC

A short of the same size would lose 1,000 USDC before fees and funding.

An inverse contract quotes the position in USD but settles profit and loss in the underlying coin. If N is the USD notional value, a long position’s Bitcoin profit is:

PnL in BTC = N × (1 / P_entry − 1 / P_exit)

For a $10,000 position opened at $100,000 and closed at $110,000:

10,000 × (1 / 100,000 − 1 / 110,000)
= 0.00909091 BTC

At the exit price, that is worth about $1,000. The dollar gain is simple to understand, but the number of BTC received changes with the price because the settlement currency is BTC.

This difference matters when a trader compares collateral. A trader holding BTC as collateral is exposed to the dollar value of that collateral as well as to the contract’s price result. A trader using a linear USDC-settled contract has a different balance and risk profile.

Reading Deribit’s instrument names

An instrument name is a label, not a complete contract specification. The current Deribit API describes these two Bitcoin perpetuals differently:

Instrument	Type	Price quote	Settlement currency	Contract size
`BTC-PERPETUAL`	inverse, returned as `reversed`	USD	BTC	$10
`BTC_USDC-PERPETUAL`	linear	USDC	USDC	0.0001 BTC

For BTC-PERPETUAL, an order amount is expressed in USD units. A $10,000 position therefore contains 1,000 contracts because each contract represents $10. For BTC_USDC-PERPETUAL, 0.1 BTC of position size is also 1,000 contracts because each contract represents 0.0001 BTC.

The pair name leaves these details unspecified. A BTC/USD instrument can be linear if its rules specify USD or a USD-like settlement currency. Before placing an order, software should read the instrument metadata instead of inferring the contract type from its name.

An API request looks like this:

https://www.deribit.com/api/v2/public/get_instrument?instrument_name=BTC-PERPETUAL

The response includes fields such as:

{
  "instrument_name": "BTC-PERPETUAL",
  "kind": "future",
  "instrument_type": "reversed",
  "future_type": "reversed",
  "base_currency": "BTC",
  "quote_currency": "USD",
  "settlement_currency": "BTC",
  "contract_size": 10
}

future_type is retained for compatibility in the API, while instrument_type is the newer field. The important fields are the type, the amount unit, the settlement currency, and the contract size.

What happens when a trader clicks Buy

An order first passes through the exchange systems that accept, match, and account for it. No blockchain transaction is needed for the match.

Trader
  -> order gateway
  -> risk checks
  -> matching engine
  -> trade execution
  -> position and balance ledger

The sequence is roughly:

The trader sends a limit or market order with an instrument and amount.
The exchange checks the order format, available funds, and risk limits.
The order book stores a limit order until a compatible order arrives.
The matching engine follows the venue’s price-time rules and matches compatible orders. One order can be filled by several orders at different prices.
The exchange records the execution, charges the relevant fee, and updates both traders’ positions.
The risk engine recalculates margin, equity, and unrealised profit or loss.

A market order usually takes liquidity from existing orders. A limit order that waits in the book can provide liquidity. These roles are often called taker and maker, but they do not change the contract’s payoff.

The exchange may use a mark price rather than the last traded price when it calculates margin. A mark price is a reference price designed to represent a fair value. On Deribit, it is derived from the spot index and a smoothed measure of the perpetual’s premium or discount. This reduces the chance that one abnormal trade in a thin order book immediately causes a liquidation.

The same internal accounting applies to most spot trades on a centralised exchange. The exchange holds assets in wallets under its control and maintains customer balances in its own database. A trade can therefore complete in milliseconds even though a blockchain transaction would take longer.

The wider market still matters. External spot exchanges provide prices used in indices. Market makers quote buy and sell prices across venues, while arbitrage traders connect those prices by buying in one market and selling in another. Those activities help a perpetual track its underlying market. Each matched order remains an internal ledger event until an asset is deposited or withdrawn.

Who is on the other side?

A buy order does not always open a long position. It can also close an existing short. A sell order can open a short or close an existing long.

Open interest is the amount of derivative exposure that remains open. It counts each outstanding contract once, even though every contract has a long side and a short side.

Consider a single matched trade:

Buyer	Seller	Change in open interest
Opens a long	Opens a short	Increases
Opens a long	Closes a long	Unchanged
Closes a short	Opens a short	Unchanged
Closes a short	Closes a long	Decreases

When an opening order meets another opening order, new exposure exists. When two closing orders meet, that exposure disappears.

The original counterparty can leave the market. Suppose Alice opens a long against Bob’s short. Later, Alice can close against Carol, who opens a new long. Bob can close against another trader. The exchange’s position records change, while the contract exposure remains matched in aggregate.

Trader counts can differ. One hundred traders might each hold a $1,000 long, while two traders each hold a $50,000 short:

Total long exposure  = 100 × $1,000 = $100,000
Total short exposure =   2 × $50,000 = $100,000

The quantities balance even though the trader counts differ. When sell orders are scarce at a reasonable price, the buyer’s order is only partly filled or remains open. Liquidity affects execution, while the open position still needs a short side.

Where a profit comes from

Before fees and funding, a matched derivative market transfers profit and loss between its long and short exposures. If the long gains $1,000 from a price move, the corresponding short loses $1,000 at the same mark or settlement price.

The exchange does not invent the $1,000. Its ledger attributes the change to the participants’ positions. In practice, the payment path is more complicated than identifying one permanent counterparty. Positions are opened, reduced, liquidated, and marked at different times. The exchange still has to maintain enough collateral and risk controls for the ledger to settle the obligations.

Before fees, the combined result of all traders is zero. Funding moves money between longs and shorts and leaves that total unchanged. Trading fees are paid to the exchange, so the traders’ combined result is below zero. Each trader’s result still depends on entry price, exit price, funding, fees, and the currency in which the result is settled.

What margin and liquidation do

A trader usually posts only part of the notional value when opening a leveraged position. The exchange requires margin as collateral.

Initial margin is the collateral required to open the position. Maintenance margin is the minimum collateral level needed to keep it open. In this futures example, equity is the account balance plus unrealised profit or loss from open positions. Available funds are what remains after the exchange reserves the margin needed for current positions and orders.

If equity falls below the maintenance-margin requirement, the exchange can liquidate some or all of the position. Liquidation orders close exposure before the account’s collateral is exhausted. The mark price, rather than a single last trade, is usually important in this decision.

A fast market move can leave the account balance negative after the position is closed. Exchanges use several controls for this risk. Incremental liquidation closes only part of a position when that is enough to restore the margin. An insurance fund can cover a remaining deficit under the venue’s rules. A liquidity-support program (LSP) transfers eligible positions to designated liquidity providers. Auto-deleveraging (ADL) can reduce selected profitable opposing positions when other support is unavailable. Socialised loss rules assign any remaining deficit to a wider group of participants.

Deribit’s current rules distinguish its products. LSP and ADL apply to linear USDC-settled perpetuals. The inverse BTC-PERPETUAL follows the liquidation and insurance-fund framework for inverse contracts. The precise waterfall belongs to the exchange’s rules; perpetual futures do not all use the same process.

How a virtual position changes real BTC balances

Consider an inverse Bitcoin perpetual. A trader deposits BTC into an exchange wallet and uses it as collateral. The trader’s open position changes the account’s unrealised profit or loss. When that result is realised or settled, the exchange can change the BTC balance in its internal ledger.

For example, suppose two accounts each start with 0.10000 BTC. A $10,000 inverse position gains 0.00909 BTC when Bitcoin rises from $100,000 to $110,000. The opposing position loses the same amount, before fees and other adjustments:

Account	Before	After the simplified settlement
Long trader	0.10000 BTC	0.10909 BTC
Short trader	0.10000 BTC	0.09091 BTC
Total	0.20000 BTC	0.20000 BTC

The table describes ledger entries, not a BTC transfer between the two accounts on every price tick. The exchange credits the winning account and debits the losing account. Its own wallet movements are separate from those internal entries.

Deribit performs a daily session settlement for futures and perpetuals at 08:00 UTC. It converts the session’s unrealised profit or loss into realised profit or loss while leaving an open perpetual position open. Positive session profit can support margin during the session, but it is generally not available for withdrawal until it has been settled into the cash balance.

The settlement currency remains important. Profit from BTC-PERPETUAL is in BTC. Profit from BTC_USDC-PERPETUAL is in USDC. A trader who wants to withdraw BTC after making a profit in a USDC-settled contract must use a separate conversion or hold BTC from another source.

A withdrawal is the point at which the exchange must create an external blockchain transaction. The lifecycle is therefore:

BTC deposit on the blockchain
        -> exchange wallet
        -> internal collateral balance
        -> perpetual position
        -> internal PnL and settlement entries
        -> available balance
        -> BTC withdrawal on the blockchain